Critical Encounters: Poverty & Privilege

Greece faces the speculators alone

Tue, 09 Feb 2010 19:23 GMT

There are shades of Britain's 1976 tryst with the IMF but the Greek debt crisis offers a chance to fight the speculative attacks faced by the euro

For those with long memories of financial crises, Jean-Claude Trichet's decision to fly home early from Australia to attend a European Union summit had a certain resonance.

As the doyen of City economists, Stephen Lewis, noted today, news that the president of the European Central Bank had cut short a visit to the antipodes conjured up images of Denis Healey turning his car round at Heathrow airport to deal with the sterling crisis that eventually required the assistance of the International Monetary Fund.

Different decade, different currency, same old story. A country struggling with severe economic problems and high levels of borrowing has been targeted by financial speculators. For Britain in 1976, read Greece in 2010. Traders and hedge funds, according to reports, have placed an $8bn (£5bn) bet that the problems of the eurozone's weakest link will result in a fall in the value of the single currency.

Joseph Stiglitz, the Nobel prize-winning economist, told the Guardian today that the only way to deal with the speculators was to meet fire with fire. He says Europe should do what Hong Kong did when first its currency and then its stock market were targeted in the Asian crisis of 1997-98, when it "burnt" the speculators by massively buying stocks. "The markets are not looking for what's good for the long-term viability of the euro. They are looking at what's going to happen in the next 24 hours."

Stiglitz said he fully supported the campaign for a "Robin Hood" tax on financial transactions to be launched tomorrow but said a small 0.05% levy would not be enough to deter speculative attacks on Greece. Instead, the answer was for Europe to show a commitment to help Greece that would "reduce the opportunity for speculative gain".

By chance, a summit in Brussels on Thursday, which has been called to map out a way to make Europe the most dynamic and competitive economy in the world by 2020, provides an opportunity for leaders of the 27 EU member states to adopt a more robust approach to the speculative attacks.

Until now, they have stuck to the letter of the Maastricht treaty, which decrees that "the Community should not be liable for or assume the commitments of central governments, regional, local or other public authorities of another member state". This means a country in trouble should not expect Germany to pick up the tab for a bailout.

Stiglitz said the insistence that Greece shoulder the burden alone has not had the desired effect of quieting the markets. Far from it. Since George Papandreou, the Greek prime minister, announced draconian plans to cut his country's budget deficit from 13% to 3% of gross domestic product within three years, the speculative attacks have broadened to Spain and Portugal and raised doubts about whether the single currency will survive in its current form. Hence Trichet's return from Australia.

So what should happen now? The first thing the assembled presidents, prime ministers and chancellors gathered together at tomorrow's summit should do is find the right language to show solidarity with the weaker members of the European club. As Stiglitz noted today, governments have shown more leniency to banks than they have to sovereign nations. The sense that countries are on their own has made markets more febrile.

The second challenge is to find a way out of the no-bailout straitjacket. Lewis, an economist at Monument Securities, said the Maastricht treaty provided wriggle room by saying that countries can be helped financially when a country faces "severe difficulties caused by natural disasters or exceptional circumstances beyond its control". Greece is certainly a country in difficulty, and Athens has been arguing that the attacks by speculators are beyond its control.

Thirdly, there has to be a mechanism for delivering support. While Greece has the biggest budget deficit in the eurozone, none of the other members – Germany included – is flush with cash, making a taxpayer bailout a non-starter. An alternative – being canvassed by John Monks, the general secretary of the European Confederation of Trade Unions and former TUC leader – is for the European Union to float bonds as part of a "New Deal for Europe".

This idea, while not new, has economic merit, since it would help boost investment in both physical and human capital in the poorer European countries, enabling them to narrow the productivity gap with the richer parts of the eurozone. Cutting spending on roads, schools and skills – which is the orthodox way of reducing a deficit – merely makes the divide wider.

Finally, Europe's leaders have to stop being in denial about the fault lines in the single currency, which have been brutally exposed by the recession. There are, and always have been, problems with a one-size-fits-all monetary policy, particularly when there is no means of making budgetary transfers from rich to poor countries and when there is little labour mobility. Instead, the only way for countries to adjust is through deflation. Until that core defect is remedied, the euro will remain hard but brittle.

Larry Elliott

guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

Toyota recalls hybrid cars worldwide over brakes

Tue, 09 Feb 2010 10:30 GMT

Around 8,500 British Prius owners affected in recall of almost half a million vehicles by carmaker hit by recent safety scares

Toyota is to recall almost half a million hybrid cars worldwide, including 8,500 of its Prius model in the UK, in the latest blow to the carmaker's reputation following a string of safety scares.

The recall will begin immediately in Japan and similar measures are being prepared overseas, the firm said today. Toyota GB announced that the recall will apply to 8,500 owners of the third-generation Prius in the UK. It will send individual letters to all those owners explaining details of the recalls, which will involve a 40-minute software update to the car's braking system.

Today's announcement follows about 200 complaints in Japan and the US over a software glitch in its best-selling Prius petrol-electric hybrid that can cause temporary brake failure at low speeds on bumpy or icy roads.

"I apologise for causing trouble and worries for many customers over the quality and safety of Toyota," its embattled president, Akio Toyoda, told reporters in Tokyo today, his second public apology in less than a week.

"We sincerely acknowledge safety concerns from our customers. We have decided to recall as we regard safety for our customers as our foremost priority. We will redouble our commitment to quality as a lifeline of our company. We will do everything in our power to regain the confidence of our customers."

Toyota GB pointed out that so far there had been no reports of accidents linked to the problem in Europe.

Toyota's Japanese headquarters informed the country's transport ministry of the recall of 223,000 hybrid cars in Japan across four models: about 200,000 of the 2010 Prius model and much smaller numbers of the Prius plug-in hybrid, the SAI and the Lexus HS250h.

It said it would take remedial measures concerning a further 213,000 hybrid cars outside Japan, including the US and Europe, taking the total number of vehicles affected to around 437,000.

The new Prius is sold in about 60 countries, with sales totalling more than 300,000 vehicles since the first models were rolled out last spring.

Toyota, the world's biggest carmaker, is already faces criticism following the recent recall of more than 8m cars worldwide affected by potentially dangerous acceleration problems.

The Prius, the world's most popular hybrid, was Japan's top-selling car last year and hailed as the ultimate in green auto technology. But mounting fears over its safety could unravel Toyota's attempts to dominate the growing market in fuel-efficient vehicles.

In the US Toyota is battling to save its reputation in the face of lawsuits linked to accidents, an investigation by highway authorities and mounting criticism of its handling of the crisis by the Obama administration.

The brake defect has been responsible for four crashes in which two people were injured, according to the National Highway Traffic Safety Administration, which has launched an investigation. There have been no reports of similar accidents in the UK.

The recall of the Prius represents a worst-case scenario for Toyota now that safety doubts surrounding its cars have spread to its hitherto fiercely loyal customers in Japan.

"Toyota has been, beyond any doubts, the top player in hybrid car segment, and the fact that Prius and other hybrid models will be part of this massive recall significantly dents its image," said Suh Sung-moon, an analyst at Korea Investment and Securities in Seoul.

Toyoda, the grandson of the company's founder, promised to work closely with US regulators following criticism that the company had only recalled cars with faulty accelerators under pressure from the US government.

"I have spoken with US transportation secretary, Ray LaHood, and given him my personal assurance that lines of communications with safety agencies and regulators will be kept open, that we will communicate more frequently and that we will be more vigilant in responding to those officials on all matters," Toyoda wrote in today's Washington Post.

He said the firm was working around the clock to fix the problem, but conceded that it needed to do more to regain the trust of American drivers. "We are taking responsibility for our mistakes, learning from them and acting immediately to address the concerns of consumers and independent government regulators."

Toyota said it had fixed the software glitch responsible for the braking problem in Prius models that went on sale from late last month, but had yet to repair models sold before then.

The admission that it had started fixing the brake glitch about a week before it went public with the problem has prompted allegations of a cover-up.

The firm will start informing Japan dealers immediately about the glitch, which takes about 40 minutes to repair.

Industry watchers said Toyota's handling of the recalls had seriously damaged its brand image. "Until the recent crisis, Toyota was the best performing and most valuable car brand in the world," said David Haigh, the chief executive of Brand Finance, a UK consultancy, adding that the Prius had "put Toyota right at the leading edge of the green car movement".

He added: "Sadly, the inept way Akio Toyoda and his management team have handled the recent crisis has massively damaged the brand."

The firm has been widely criticised for failing to deal more quickly with the defects. It took almost two weeks for Toyoda, who was made president last summer, to comment publicly after the accelerator recall was announced last month.

The company is also anticipating a flurry of lawsuits in the US over the brake problem, in addition to those already filed in connection with "sticky" accelerators.

Today it was reported that the owner of a 2010 Prius has sued Toyota in Los Angeles, claiming that the company had failed to fix the brake defect.

Toyota's North America chief executive, Yoshimi Inaba, is due to come under pressure to explain his firm's poor handling of the recall when he testifies in front of a congressional committee in Washington tomorrow.

Justin McCurry

guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds